A Business Encyclopedia

Stock Split

Definition: A Stock Split is a method of increasing the number of outstanding shares with a proportionate reduction in its face value. With a split only the price per share reduces, the market capitalization i.e. market value of the outstanding shares and the proportionate ownership interest of the existing shareholders do not change.

The stock split is generally done when the price of a share is too high and is not affordable to all the investors, generally the small investors. Thus, the shares are broken down into multiple shares to infuse the liquidity and to increase its affordability.

Companies split their shares because of the following reasons:

  • To reduce the market price of a share and make it more attractive to all types of investors. Generally, the shares with the high market price move into a high trading zone, which is beyond the access of small investors. Thus, a stock split is done to bring the shares into the popular trading zone and make it more affordable.
  • Often it is done to convey to the shareholders that firm is expecting higher profits in the future.
  • With a stock split, companies do not resort to reducing the cash dividends. Even the investors could earn more dividends if the firm follows a stable dividend policy.

People often get confused with the stock split and the bonus shares. With the issue of bonus shares the issued share capital changes, whereas with a stock split the company’s authorized share capital changes.

Leave a Reply

Your email address will not be published. Required fields are marked *


Related pages

manager hindi meaningcharacteristics of a laissez-faire leaderordinal theorywhat are the five steps in the hypothesis testing proceduredefine residuarylikertsdisadvantages of span of controlwhat is skimming pricing in marketingfred fiedler leadership theoryweber bureaucracyperfectly competitive marketchain referral samplingwhat is the meaning of retrencheddefinition for moratoriumprestige defemployees provident fund balancecognitive theory of learning definitionmoneteristasset turnover ratio equationatm meaning bankdifference between cardinal utility and ordinal utilitythe margin of safety percentage is computed asdefinition of arbitrage in economicsdelphi technique definitionmeaning of staged in hinditypes of cost push inflationbusiness jargonsdefine involuntary unemploymenttuckmans stages of group interactionppf definitiondefine investiturewhat is the meaning of npsstratified sampling meaningmeaning of provident funddecision tree approach in capital budgetingdefinition vestibulechits definitionmeaning retrenchmentstratification defproduct mix marketing definitionconsumer cyclical definitionpoaching meaning in recruitmentcheque truncationdefinition of geocentricintrapreneur defineadvantages and disadvantages of m commercewhat is subsistence wageexamples of polycentric companiesgeocentric managementclassical conditioning for dummiesadvergaming definitionnpv modelpoaching in recruitmentdeterminants of demand elasticityfive types of elasticity of demandbarth definitioncluster sample statisticsearnings capitalization modelcharacteristics monopoly economicsinstallment definition financekanban production control system definitionelement of promotion mixinnovation theory by joseph schumpetermeaning debentureindifference curvedefinition resonantclassical theoristsmeaning of liquidity in economicsmeaning of investment multipliercyclical definition economicsporter five forces modelexamples of geocentric companiesdefine the concept of entrepreneurshipdiminishing marginal utility graphansoff product matrixulterior egolaissez faire management definitionpromotional pricing examplesdifference between cardinal utility and ordinal utilitydefine hedging financeindifference defmcgregor theory x and theory ymouton meaning